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Phil Dumouchel

First Steps

Friday, October 26, 2012 - Article by: Phil Dumouchel - TD Bank - Message

Preparing to Apply for a Mortgage

The two of the most important steps toward preparing to buy a home are:

1. Have enough savings to cover downpayment and closing costs in addition to normal monthly bills.

2. Make sure your credit is ready to be reviewed by a lender. Higher credit scores also generally mean a better interest rate on your loan, and make it easier for you to be approved.

Savings: Depending on the type of mortgage, you have at least $2500-$3000 in checking/savings. Generally, out of pocket expenses before closing will be $1000-1500 plus you need to show "reserves" (money left over after buying a home) to get approval. Normally, a downpayment is 3-5% of the purchase price. Save your money in checking/savings, investment accounts - it cannot be cash saved up at home. Tax refund, 401k loans, and a gift from immediate family are also acceptable sources. A very few mortgages offer up to 100% financing but there are still out-of-pocket costs before the closing. All funds must documented through bank or other statements, gift letters, etc.
o Deposits may have to be explained; don't deposit cash! Pay bills with the cash, let your pay accumulate
o Do not have NSF (overdraft) charges in your checking account - that is a big negative.

Credit: Before having your credit checked here are a few recommended steps.
o Get your full credit report at (call 1-877-322-8228 to have it mailed). FREE! This does not count as an inquiry, but no scores are given. Print out the report from ALL THREE credit agencies! You can pay a small fee to get your actual scores.
o Any credit card with balances should be paid down to less than 30% of the limit on the card (getting them to less than 50% helps but not as much as less than 30%).
o PAY any new collections/charge-offs reported during the past 12 months.
o DON'T pay collections or charge off's older than 12 months unless your mortgage lender tells you to (condition for loan approval). But, be prepared to pay if needed to get final approval). You will need to document where the money is coming from the same way as your downpayment.
o Don't open any new accounts, finance company loans, credit cards, etc. However, if you do not have any currently open/active trade lines (loans or open credit cards) you may need a secured a loan and/or credit card, preferably through a credit union, to help you build a stronger credit profile and score. (Finance Company loans are not nearly as positive for your credit as those from more traditional lenders.)
o Don't let anyone check your credit unless really necessary, too many inquiries can reduce your score.
o Make sure you are not currently late on any debts; there really should have been any late payments in the last 6-12 months (ideally the past 24 months, but the past 12 months are most important).
Opt Out: Credit agencies are allowed to sell your information to lenders so they may contact you to offer financing. To control who has access to your credit information, go to and "opt out" from receiving offers. This may improve your score slightly and will also cut down on the amount of "junk" mail you receive.

Don't wait - follow through on these recommendations today!

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